C-AIR TIMES ISSUE #422 - Friday, May 06, 2016 08:01

Duty Savings Program
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP (GDLSK) / Alan G. Lebowitz, Esq.

We (GDLSK) encourage you to think of Customs duties as variable costs, rather than fixed costs. Below outlines two of the Customs duty savings programs that GDLSK have implemented for a number of their clients, i.e., the so-called first sale and agency (AP) programs. Several court cases decided in the early 1990's held that where goods are purchased from a trading company (or "middleman"), when certain conditions are met, duty can be paid on the "first sale" price (i.e., the price paid by the middleman to the factory, rather than the price paid by the importer to the middleman). The benefit of the first sale program is that properly structured shipments may be appraised based on the sale price from the factory to the middleman, rather than the higher middleman to U.S. importer price. That is, duty is not paid on the amount representing the middleman's mark-up.

Alternatively, the so-called AP program involves a restructuring of direct factory purchases ( transactions with no trading company involvement) to create a duty savings opportunity.

I. FIRST SALE

A. Background

Under a first sale program, the importer would place orders for merchandise with a middleman supplier. The middleman trading company would, in turn, place orders for the same merchandise with overseas factories.

B. First Sale Principle

To qualify for more favorable appraisement under the first sale rule, certain criteria must be met. Specifically, in order to declare U.S. Customs value based upon the manufacturer’s price, the following two conditions must be met:

The sale between the middleman and manufacturer must be fairly negotiated ("at arm’s length") and free from non-market influences that affect the legitimacy of the sales price; and
The first sale must involve “goods clearly destined for export to the United States.”

The first condition – that the factory’s price be a fair ("arm’s length") price – is only a potentially significant issue where the middleman and factory are related. [In such cases, an examination of the price charged between the related parties may be necessary to support the proposition that the relationship did not influence the price. ]1[] In contrast, where the manufacturer is unrelated to the middleman reseller, Customs will ordinarily presume that it is an arm’s length transaction.

The second condition – that the goods are “destined for export to the United States is relatively straightforward, and supporting evidence in many different forms may be offered. Examples of favorable factors include:

(A) The goods are shipped from the factories directly to the U.S. purchaser;

(B) Marking/labels required to be placed on the merchandise reflect the fact that the goods are destined for a particular customer in the United States (e.g., placement of JCS’ RN number on the imported article);

(D) The goods feature a trademark, owned or controlled by the U.S. importer.

II. AP PROGRAM

The prices charged by factories include the cost of certain “value-added services” which do not relate directly to the production of the merchandise. Many of these value-added services are identifiable as traditional buying agency type services and thus could potentially be considered non-dutiable activity, if rendered by a bona fide buying agent pursuant to a buying agency agreement rather than by the factory.

A. Legal Background

“Transaction value”, which is the primary basis of appraisement for imported merchandise imported into the United States, is defined as “the price actually paid or payable by the buyer to, or for the benefit of, the seller when the merchandise is sold for export to the United States” plus certain statutory additions.[4] Under this definition, all amounts paid to or through the seller of the merchandise will generally be considered dutiable.

Significantly, bona fide buying commissions are not one of the statutory additions to the price paid or payable.[5] Thus, commissions paid to a bona fide buying agent will not be added to the price paid or payable for merchandise under a transaction value appraisement. Customs will look to the totality of the evidence to determine if the agency relationship is bona fide. See e.g., Rosenthal-Netter, Inc. v. United States, 12 CIT 77, 679 F. Supp. 21, aff’d, 7 Fed. Cir. (T) 11, 861 F.2d 261 (1988). In determining whether a buying agency relationship is bona fide, Customs will examine the role of the parties as well as their relationship. Where the buying agent assists the importer with the purchase, inspection, packing, shipment and payment of the goods, the commissions paid for these services have been consistently treated as bona fide buying commissions and not been considered part of the dutiable cost of the imported merchandise.

Customs Headquarters has ruled that transactions involving a related buying agent and seller may be subject to closer scrutiny. However, as long as the principal (usually the U.S. importer) retains control over the agent, the commission inures solely to the benefit of the agent, and the actions of the parties comport with the terms of the buying agency agreement, the commissions paid to the agent will constitute bona fide and non-dutiable buying commissions. HQ 544933 (1992); HQ 545176 (1993); HQ 545177 (1993); HQ 545794 (1995); HQ 547239 (1999) and HQ 547806 (2001).

B. Procedures for Implementing A Buying Agent Program (“AP” Program)

In order for the costs associated with buying agency type functions to be considered non-dutiable, the company performing such buying agency functions must be a separate and distinct corporation from the company that is acting as the seller of the merchandise itself. The buying agent and the seller of the merchandise must be legally and financially separate entities. That is, the buying agency type services must be performed by a separate corporation that serves a real and legitimate business function (though it can be wholly or partially owned by the vendor). Accordingly, the buying agent must have employees who are tasked to carry out specific agency functions and the buying agent must be the recipient of the commission. (A representative list of services that have been recognized as valid buying agency functions can be found at the end of this e-mail). Thus, if structured properly, such buying agency type services could be performed by a new company which is related to a current factory.

Under the AP program, the newly spun off buying agent would enter into a services agreement with the importer. Such agreements generally provide that the agent will perform certain services in exchange for the payment of a commission equal to a fixed percentage of the FOB value of the merchandise, e.g., typically 5% to 10%.

The buying agent would assist the importer in negotiating the purchase price of the merchandise with the seller. Purchase orders and letters of credit would continue to be issued by the importer to the seller (e.g., current factory), but at a price that excludes the agent’s commission. The seller would issue a commercial invoice to the importer which would accompany the shipment and be used to clear U.S. Customs. The buying agent would separately invoice the importer for its commissions and the importer would pay the buying agent directly for the services it performed.

Conclusion:

In conclusion, GDLSK believe that a viable opportunity exists to reduce the Customs duties on merchandise sold to an importer which has been purchased through a middleman trading company or with the assistance of a buying agent. GDLSK look forward to working with anyone that might be interested in exploring the opportunities discussed above.

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Typical Buying Agency Functions

Placing orders for merchandise on behalf of the buyer.
Investigating and locating potential manufacturers.
Conveying the buyer’s specifications to the manufacturers/sellers.
Negotiating on behalf of the buyer.
Visiting the manufacturers and monitoring production to ensure compliance with the buyer’s needs and legal requirements.
Inspections/issuance of inspection certificates.
Forwarding samples from the factory to the buyer.
Assisting the buyer in the return of defective merchandise.
Assisting the buyer in resolving claims against the seller.
Supervising the packaging of the merchandise and to ensure compliance with the buyer’s specifications.
Assisting the manufacturer in locating and obtaining all necessary raw materials, components, etc.
Arranging for the transportation/insurance of the merchandise.
Assisting the buyer with documentation issues (e.g. purchase orders, export documents, etc.).
Reporting on market conditions, new products, styles and trends.
Facilitating communication between the buyer and seller.
Validation of CITES Documents for Products Containing Both CITES Listed Plants Species and Wildlife Species
Fish & Wildlife Service

Background: There has been a reoccurring issue with respect to which government agency, the U.S. Fish and Wildlife Service (FWS) or the U.S. Department of Agriculture Animal and Plant Health Inspection Service (APHIS) provides inspection, Convention on International Trade in Endangered Species (CITES) permit validation, and clearance for shipments of products imported and exported that contain both CITES listed plant species and wildlife species, both CITES and non-CITES.

To address these issues, the FWS and APHIS have collaborated to streamline the import and export requirements for both agencies. This agreement is effective immediately and until further notice.

Action: FWS Wildlife Inspectors will validate CITES documents and inspect and clear imports and exports of products that meet the following criteria:

For Import - inspect and clear shipments of products containing both CITES listed non-living plant species and any wildlife species that may be either CITES or non-CITES listed species

For Export - inspect and clear, including validation of CITES documents, shipments of products containing both CITES listed non-living plant species and any wildlife species, both CITES and non-CITES listed species

This guidance only applies to shipments that contain both CITES listed plants and wildlife.

CBP Creates Trade Enforcement Task Force
U.S. Customs & Border Protection

WASHINGTON — U.S. Customs and Border Protection established a Trade Enforcement Task Force last month within CBP’s Office of Trade to further protect the American economy and domestic industry. The task force is focused on issues related to enforcement of antidumping and countervailing duty laws, and interdiction of imported products using forced labor. Both antidumping and countervailing duty are tariffs imposed on foreign imports priced below fair market value to ensure a level playing field for domestic producers.

“This task force strengthens CBP's ability to detect high-risk activity, target illicit trade networks, and work with industry to disrupt evasion of U.S. trade laws,” said CBP Commissioner R. Gil Kerlikowske. “It focuses expertise and resources to safeguard the U.S. market and ensure a fair and competitive trade environment."

The task force enables CBP to leverage new enforcement authorities of the Trade Facilitation and Trade Enforcement Act of 2015, which strengthens CBP’s enforcement capabilities and methods to better enforce U.S. trade laws, including antidumping countervailing duty laws. The Act also enhance CBP’s efforts to combat the import of counterfeit goods and protect intellectual property rights holders, and eliminates obstacles to preventing imports made with forced or child labor into the United States.

The CBP task force will harness the agency’s collective trade enforcement expertise as a focal point for coordination with other government agency partners, including Department of Commerce and U.S. Immigration and Customs Enforcement’s Homeland Security Investigations.

By focusing its combined resources through the enforcement task force, CBP will be able to combat illicit traders that illegally exploit American trade and conduct enforcement operations at and beyond the border to ensure U.S. industry can compete on a level playing field.

FMC’s Supply Chain Innovation Teams Launched Today
Federal Martime Commission

The Federal Maritime Commission’s Supply Chain Innovation Team Initiative, led by Commissioner Rebecca F. Dye, was launched today at FMC headquarters in Washington, D.C.. Over the next two-days, industry leaders from 34 companies will be working in teams to develop process innovations that will improve the reliability, resilience, and competitiveness of America’s global supply chain.

"I thank Commissioner Dye for agreeing to lead the Supply Chain Innovation Team Initiative the FMC launched today," said Chairman Mario Cordero. "The Commission is fortunate to have her move toward this endeavor and her vision, expertise, and determination will be key factors in guiding discussions and encouraging participants to offer meaningful supply chain improvements. I look forward to Commissioner Dye’s engagement with the Supply Chain Innovation Teams and bringing the Commission’s vision for these teams to fruition."

"The innovation team approach focuses on obstacles to the smooth flow of cargo in our $980 billion annual export and import containerized trade," said Dye. "We are not offering an ‘FMC solution’ to congestion-related problems. Rather, we are acting as a catalyst for committed teams of major company leaders as they exchange ideas and debate creative proposals for supply chain improvements. The nonpublic, small team effort is conducive to robust engagement among team members."

Commissioner Dye emphasized that the FMC’s initiative is intended to complement and accelerate other on-going efforts, such as those underway in Los Angeles, Long Beach and at the Port of New York & New Jersey, and to stimulate similar efforts elsewhere. "We know others are already hard at work on these issues and expect our teams’ efforts will contribute to their success."

"This is not a ‘quick fix’ to complex, systemic supply chain congestion problems, but I am confident the approach we’re taking will produce beneficial results," Dye remarked "We expect our teams to move beyond a discussion of problems to a plan of action." She added that the outcome of this initiative will ultimately depend on the shared efforts of the individual teams. "Our team members are experienced and talented, and I have great confidence that they’ll rise to the challenge."

"On behalf of the Federal Maritime Commission, I want to express our appreciation to the major company representatives who committed their time and resources as Innovation Leaders," Dye said. She also thanked the academic and business advisors who support the FMC initiative and will provide ongoing advice for the work of the teams. Finally, Dye thanked the many trade association representatives who made recommendations from among their most accomplished members for the teams.

Commissioner Dye and FMC staff will remain engaged with the teams and report on the direction and progress of their work at future Commission meetings and on the Supply Chain Innovation webpage on the Commission’s website.

Treasury Releases Report on Foreign Exchange Policies of Major Trading Partners of the United States
U.S. Department of the Treasury

Implements Intensified Evaluation Provisions of the Trade Facilitation and Trade Enforcement Act of 2015, Establishes New “Monitoring List” for Enhanced Analysis

WASHINGTON – The U.S. Department of the Treasury today released a report on the Foreign Exchange Policies of Major Trading Partners of the United States. This updated report reviews developments in international economic and exchange rate policies and is submitted to Congress pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22 U.S.C. § 5305 and Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015.

This Report is the first to implement the new provisions of the Trade Facilitation and Trade Enforcement Act of 2015, also known as the Customs Bill. The provisions of the Act provide the United States with valuable new reporting and monitoring tools, as well as new measures to address unfair currency practices. These new tools significantly enhance Treasury’s ability to undertake a data-driven, objective analysis of a country’s foreign exchange policies and their impact on bilateral trade with the United States and the broader multilateral trade position. The Report also describes the factors Treasury used to assess, under the Act, whether a country that is a major trading partner of the United States has: (1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one-sided intervention in the foreign exchange market.

The Report highlights that, underpinned by robust job creation and resilient domestic demand, the U.S. economy grew at a solid pace of 2.4 percent in 2015. Outside of the United States, growth in other advanced economies was more disappointing and emerging market economies are facing significant headwinds from low commodity prices, weak trade growth, and internal cyclical dynamics. Most projections for 2016 point to the continuation of modest growth abroad.

Based on the new tools provided under the Act, this report also establishes a new “Monitoring List” which finds that five major trading partners of the United States – China, Japan, Korea, Taiwan, and Germany – met two of the three criteria for enhanced analysis. No economy currently meets all three criteria. Accordingly, Treasury is not undertaking enhanced analysis for any country.

The Report notes that China has both a significant bilateral trade surplus with the United States and a material current account surplus. China has intervened heavily in the foreign exchange markets in recent months to support the RMB, after strong downward market pressure triggered by a surprise change in China’s foreign exchange policy last August. More clarity over exchange rate goals would help to stabilize the market.

The Report points to Japan’s significant bilateral trade surplus with the United States and material current account surplus. Japan has not intervened in the foreign exchange market in over four years. Treasury assesses that current conditions in the dollar-yen foreign exchange market are orderly, and reiterates the importance of all countries adhering to their G-20 and G-7 commitments regarding exchange rate policies.

Korea has a significant bilateral trade surplus with the United States and a material current account surplus. Treasury estimates that during the second half of 2015 through March 2016, the Korean authorities intervened to resist depreciation of the won during periods of financial market turbulence, representing a shift from several years of asymmetric intervention to resist appreciation. The report urges Korea to limit its foreign exchange intervention only to circumstances of disorderly market conditions and to increase the transparency of its foreign exchange operations.

Taiwan has a material current account surplus and, per Treasury estimates, has engaged in persistent net foreign currency purchases through most of 2015. The Report calls on the authorities to limit foreign exchange interventions to the exceptional circumstances of disorderly market conditions, as well as increase the transparency of reserve holdings and foreign exchange market intervention.

Germany has both a significant bilateral trade surplus with the United States and a material current account surplus. Germany has the second largest current account surplus globally which represents substantial excess saving—more than 8 percent of GDP—that could, at least in part, be used to support German domestic demand.

Treasury will closely monitor and assess the economic trends and foreign exchange policies of the economies on the Monitoring List.

Based on the analysis in this report, the Treasury Department has also concluded that no major trading partner of the United States met the standard of manipulating the rate of exchange between its currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade as identified in Section 3004 of the Act during the period covered in the Report.

The Report underscores the essential importance of comprehensive adherence to all G-7, G-20 and International Monetary Fund exchange rate commitments. These include the G-7 commitments to orient fiscal and monetary policies towards domestic objectives using domestic instruments and to not target exchange rates, and that economies should use all available policy tools to boost demand. In February 2016 and again in April, the G-20 Finance Ministers and Central Bank Governors endorsed this view, stating that G-20 countries “will use all policy tools—monetary, fiscal and structural—individually and collectively” to foster confidence and preserve and strengthen the recovery.

The full report, along with past reports, is available here.

Chinese Chemical Engineer Sentenced for Synthetic Drugs
U.S. Immigration and Customs Enforcement

JACKSONVILLE, Fla. – A Chinese man was sentenced Monday to 50 months in federal prison for conspiracy to import controlled substance analogues (synthetic cannabinoids) knowing they were intended for human consumption, and aiding and abetting the importation of controlled substances and cathinones, also known as bath salts. This case was investigated by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), the Jacksonville Sheriff’s Office, U.S. Postal Inspection Service ,and the North Florida High Intensity Drug Trafficking Area Task Force, as part of Project Synergy, part of the Department of Justice’s Special Operations Division.

Wei Zhang, aka David Liteng, 36, of Tianjin, China, also forfeited $1.5 million that had been seized from a Swiss bank account.

"This international investigation brings the first U.S. arrests and convictions of Chinese synthetic drug manufacturers and suppliers," said Susan L. McCormick, special agent in charge of HSI Tampa. "HSI special agents, working with the U.S. Postal Inspection Service, the Jacksonville Sheriff’s Office and the North Florida High Intensity Drug Trafficking Area Task Force, have stopped these dangerous synthetic drugs from entering our communities.”

According to court documents, in late 2010, an individual met with Dan and Kevin Louie, the owners and operators of Source1Herbs, in Toronto, Canada. Source1Herbs was a large wholesale business that sold synthetic cannabinoids and cathinones. This individual met with the owners and learned that their Chinese-based supplier was Wei Zhang, aka “David Liteng.” In October 2010, the individual made contact with Zhang and discussed ordering chemicals from him directly. In late February 2011, the individual and his business partner traveled to China and met with the suppliers, including Zhang. During these meetings, the individual and Zhang discussed finding a replacement chemical for 1-pentyl-3-(1-napthoyl) indole JWH-018, which was set to be temporarily listed as a Schedule I controlled substance by Drug Enforcement Administration March 1, 2011. As a result of the meeting, the individual obtained a more favorable pricing from Zhang for synthetic chemicals. Zhang, a chemical engineer, explained the best chemical alternatives for JWH-018 that would give the end user a similar high, including stimulant and hallucinogenic effects.

On March 1, 2011, Zhang and others exchanged email communications, including news articles, for specific chemicals banned that day, which included JWH-018.

One such email from Zhang states, “Hi we know there will be ban jwh and similar product on 1th (sic) march. Pls let me know what happen tomorrow.”

When JWH-018 was placed on the DEA’s banned list, Zhang and others began selling other chemicals, including AM-2201, JWH-081, JWH-122, JWH-203, JWH-210 and JWH-250. Zhang routinely shipped large quantities of those chemicals to customers in the United States, Russia and Europe, distributing a portion of the synthetic cannabinoids through mailing facilities in the Middle District of Florida. From March 2011 through February 2012, Zhang shipped approximately 798 kilograms of these chemicals to the individual. In addition, he supplied Source1Herbs with large quantities of synthetic cannabinoids and cathinones.

In July 2013, Zhang and the individual had several discussions about synthetic cannabinoids, the latest trends in the worldwide industry, and the controlled status of certain chemicals, including UR-144, 5F-UR-144 and RCS-4. Zhang sent the individual various samples of synthetic chemicals known as 5 Meo Dalt (a synthetic cathinone), A834, 5F-UR-144, JWH-308, and WIN48098. Zhang also discussed emerging synthetic cannabinoids PB-22 and 5F-PB-22, both of which were controlled substance analogues of JWH-018 at the time, and then later designated as Schedule I controlled substances. After receiving a spreadsheet of Zhang’s inventory, the individual negotiated a purchase deal with Zhang for large quantities of UR-144, 5F-UR-144, and RCS-4. The negotiated price for approximately 773 kilograms of chemicals was $265,000, and Zhang agreed to provide the chemicals on consignment. Zhang agreed to ship mislabeled parcels containing 2 or 3 kilograms of those substances per parcel to various mailing facilities within the Middle District of Florida.

From Feb. 3, 2014, through May 16, 2014, HSI received 48 packages containing 144 kilograms of UR-144, 47 packages containing 106 kilograms of 5F-UR-144 (XLR-11), and 8 packages containing 16 kilograms of RCS-4. During the receipt of those packages, the individual further negotiated to pay Zhang $150,000 for the 266 kilograms of Schedule I controlled substances. In April 2014, Zhang traveled to the United States to retrieve $150,000 in cash for the substances, where he was ultimately arrested.

On May 7, 2014, the U.S. Treasury Department - Office of Foreign Asset Control used the Kingpin Act to designate Source1Herbs and Dan and Kevin Louie, both Canadian nationals, on the Specially Designated National List. The Kingpin Act permits the imposition of economic sanctions to preclude a variety of worldwide economic transactions.

Zhang’s conviction marks the third Chinese national convicted in the United States for importation of synthetic drugs. Jin Liu was also prosecuted in the Middle District of Florida for conspiracy to import 100 kilograms of PB-22, a synthetic cannabinoid.

The Special Operations Division, along with the Narcotic and Dangerous Drug Section of the Department of Justice, coordinated Project Synergy to investigate and prosecute the leaders in the synthetic drug business both domestically and internationally.

This case was prosecuted by Assistant U.S. Attorney A. Tysen Duva, from the office of U.S. Attorney, Middle District Florida, A. Lee Bentley, III.

FDA Takes Significant Steps to Protect Americans from Dangers of Tobacco Through New Regulation
Food & Drug Administration

Today, the U.S. Food and Drug Administration finalized a rule extending its authority to all tobacco products, including e-cigarettes, cigars, hookah tobacco and pipe tobacco, among others. This historic rule helps implement the bipartisan Family Smoking Prevention and Tobacco Control Act of 2009 and allows the FDA to improve public health and protect future generations from the dangers of tobacco use through a variety of steps, including restricting the sale of these tobacco products to minors nationwide.

“We have more to do to help protect Americans from the dangers of tobacco and nicotine, especially our youth. As cigarette smoking among those under 18 has fallen, the use of other nicotine products, including e-cigarettes, has taken a drastic leap. All of this is creating a new generation of Americans who are at risk of addiction,” said HHS Secretary Sylvia Burwell. “Today’s announcement is an important step in the fight for a tobacco-free generation – it will help us catch up with changes in the marketplace, put into place rules that protect our kids and give adults information they need to make informed decisions.”

Tobacco use is a significant public health threat. In fact, smoking is the leading cause of preventable disease and death in the United States and responsible for 480,000 deaths per year. While there has been a significant decline in the use of traditional cigarettes among youth over the past decade, their use of other tobacco products continues to climb. A recent survey supported by the FDA and the Centers for Disease Control and Prevention shows current e-cigarette use among high school students has skyrocketed from 1.5 percent in 2011 to 16 percent in 2015 (an over 900 percent increase) and hookah use has risen significantly. In 2015, 3 million middle and high school students were current e-cigarette users, and data showed high school boys smoked cigars at about the same rate as cigarettes. Additionally, a joint study by the FDA and the National Institutes of Health shows that in 2013-2014, nearly 80 percent of current youth tobacco users reported using a flavored tobacco product in the past 30 days – with the availability of appealing flavors consistently cited as a reason for use.

Before today, there was no federal law prohibiting retailers from selling e-cigarettes, hookah tobacco or cigars to people under age 18. Today’s rule changes that with provisions aimed at restricting youth access, which go into effect in 90 days, including:

Not allowing products to be sold to persons under the age of 18 years (both in person and online);
Requiring age verification by photo ID;
Not allowing the selling of covered tobacco products in vending machines (unless in an adult-only facility); and
Not allowing the distribution of free samples.

The actions being taken today will help the FDA prevent misleading claims by tobacco product manufacturers, evaluate the ingredients of tobacco products and how they are made, as well as communicate their potential risks.

Today’s rule also requires manufacturers of all newly-regulated products, to show that the products meet the applicable public health standard set forth in the law and receive marketing authorization from the FDA, unless the product was on the market as of Feb. 15, 2007. The tobacco product review process gives the agency the ability to evaluate important factors such as ingredients, product design and health risks, as well as their appeal to youth and non-users.

Under staggered timelines, the FDA expects that manufacturers will continue selling their products for up to two years while they submit – and an additional year while the FDA reviews – a new tobacco product application. The FDA will issue an order granting marketing authorization where appropriate; otherwise, the product will face FDA enforcement.

For decades, the federal government and the public health community have fought to protect people from the dangers of tobacco use. Since the first Surgeon General’s report on Smoking and Health in 1964, which warned Americans about the risks associated with smoking, significant progress has been made to reduce smoking rates among Americans. In fact, tobacco prevention and control efforts have saved at least 8 million lives in the last 50 years, according to the 2014 Surgeon General’s Report on the Health Consequences of Smoking. In 2009, Congress took a historic step in the fight for public health by passing the bipartisan Family Smoking Prevention and Tobacco Control Act (TCA) giving the FDA authority to regulate the manufacturing, distribution and marketing of tobacco products to protect the public health.

Today’s action marks a new chapter in the FDA’s efforts to end preventable tobacco-related disease and death and is a milestone in consumer protection.

“As a physician, I’ve seen first-hand the devastating health effects of tobacco use,” said FDA Commissioner Robert M. Califf, M.D. “At the FDA, we must do our job under the Tobacco Control Act to reduce the harms caused by tobacco. That includes ensuring consumers have the information they need to make informed decisions about tobacco use and making sure that new tobacco products for purchase come under comprehensive FDA review.”

Today’s actions will subject all manufacturers, importers and/or retailers of newly- regulated tobacco products to any applicable provisions, bringing them in line with other tobacco products the FDA has regulated under the TCA since 2009.

These requirements include:

Registering manufacturing establishments and providing product listings to the FDA;
Reporting ingredients, and harmful and potentially harmful constituents;
Requiring premarket review and authorization of new tobacco products by the FDA;
Placing health warnings on product packages and advertisements; and
Not selling modified risk tobacco products (including those described as “light,” “low,” or “mild”) unless authorized by the FDA.

“This final rule is a foundational step that enables the FDA to regulate products young people were using at alarming rates, like e-cigarettes, cigars and hookah tobacco, that had gone largely unregulated,” said Mitch Zeller, J.D., director of the FDA’s Center for Tobacco Products. “The agency considered a number of factors in developing the rule and believes our approach is reasonable and balanced. Ultimately our job is to assess what’s happening at the population level before figuring out how to use all of the regulatory tools Congress gave the FDA.”

To assist the newly-regulated tobacco industry in complying with the requirements being announced today, the FDA is also publishing several other regulatory documents that provide additional clarity, instructions and/or the FDA’s current thinking on issues specific to the newly-regulated products.

The FDA, an agency within the U.S. Department of Health and Human Services, protects the public health by assuring the safety, effectiveness, and security of human and veterinary drugs, vaccines and other biological products for human use, and medical devices. The agency also is responsible for the safety and security of our nation’s food supply, cosmetics, dietary supplements, products that give off electronic radiation, and for regulating tobacco products.